The Guardian recently ran an interactive question and answer session about surviving your first year as an entrepreneur. The session was sponsored by Nominet who run the Nominet Internet Awards. The panel was facilitated by Matthew Caines the editor of the Guardian’s Culture Professionals Network. The session covered some fascinating topics like the difference between the corporate world and life in a startup. I’ve chosen a couple of the key conversations and insights to quote below. Check out the discussion page itself to see the rest of the comments and questions.
Why did you want to become an entrepreneur?
Joe Scarboro: Doing and creating something meaningful is the key, as well as being the master of your own destiny. I’d always had that feeling of wanting to do my own thing, at every job I’ve had I always felt that I’d be doing things a bit differently if I were in the driving seat!
Jeff Lynn: I wanted to create value, full stop. I didn’t want to look back on my life and feel that all I had done was push paper around for 40 years. I was determined to do something that had (or at least tried to have) a lasting impact. The specific idea only came later.
Gary Stewart: I became an entrepreneur because I wanted to write my own rules. I felt limited in a corporate environment, and I wanted to believe that I could do it better. I wanted freedom.
Emi Gal: I started my first business while still in college. The thought of getting a job never occurred to me, it just felt that I could achieve much more if I just did something on my own.
What helps you on personal level when things are tough?
Gary Stewart: One of the keys is to have a good team of fellow entrepreneurs, both within your company and without, to advise you and listen to you. Sometimes family members and friends get tired of hearing you talk all the time about your baby, but other entrepreneurs might actually enjoy having someone to commiserate with. It’s also useful to have good mentors who have been through it all before to help you maintain a bit of perspective. It’s totally normal to stumble, and it’s totally normal to have mini-meltdowns, as long as you can keep it in perspective and not lose sight of the bigger vision.
Joe Scarboro: Definitely perspective. Take time to step away from the project and get a coffee or beer with someone that knows what you’re doing but is removed enough to be able to provide a very different view.
Emi Gal: The only thing that helps is having great people around you. Great team, great mentors, very close friends and family. There’s nothing like being able to pick up the phone when you’re going through tough times and having someone on the other line who’s willing to listen to your troubles.
Jeff Lynn: Having a supportive spouse/life partner. No way I would have gotten through the many struggles of the early days if my amazing wife hadn’t been there to encourage and support me.
Jules Coleman: Having a supportive network of friends and family is vital. People that don’t think you are crazy for leaving your job for massive uncertainty (or if they do, conceal it very well!). A hobby outside work that can take your mind off things can work wonders. Many entrepeneurs swear by the importance of regular exercise. In fact Paul Graham (YCombinator) is quoted as saying: “If you’re ever unsure of what you should be doing during YC, ask yourself these questions: ‘Am I building our product? Am I talking to users? Am I exercising?’. If you’re not doing one of these things, then you’re doing the wrong thing.”
Jason Goodman: Having a great set of advisors or non execs on your board is a serious help in the startup phase. When I started Albion I set up an advisory board in the first few months. We had three brilliant and experienced non execs who all ended up making a small investment in the business. When things got very hard in the first year or two the ability to pick experienced trusted brains was very important. It may sound ridiculous to have a board before you have actually built a business, but it pushes you to do the right things. It keeps you focused on creating the right plan and delivering against it.
Ami Shpiro: It’s definitely the people around you that will keep you going. To have the courage to ask for opinions, help from your team, friends and family. Having a supportive mentor, who has been through similar experiences, is very important in the early stages of entrepreneurship. Being in a coworking space can help you attain that support.
Does a startup founder need strong technical skills?
Jeff Lynn: At this stage in the digital revolution, it’s essential that someone on your team with top-notch coding skills. He/she may then choose to outsource some of the work to external developers, but it’s essential that there be at least one person who has a strong grasp of the technical issues while also being fully bought into the commercial side of the business. In my case, that’s my co-founder. I’m lucky if I can figure out how to turn on my computer, but he has been the one who has led our development efforts while also staying fully involved in the business. I would not recommend starting a web or software play without someone in that role.
Jules Coleman: As a formerly non-technical person, I do feel that it’s important to have technical skills within the team if you’re hoping to build a web-based startup. We toyed with the idea of just hiring an agency to build the initial version of our business. In the end we didn’t. Instead myself and my co-founder taught ourselves to code and built everything from scratch. Perhaps that is a slower approach but it made us eminently more investable than if we had merely outsourced the work to a third party. Not only can that be an expensive endeavour, but it also usually means that you can’t be as flexible as an early stage startup needs to be. If the web component is merely marketing material for a more bricks and mortar type business, then you can probably ignore that advice. However, if your business is technology, then owning that technology is incredibly important.
Ami Shpiro: Having a technical co-founder is crucial for a web-based startup. Outsourcing your software and coding early on, might lead to you losing control of the core of your business.
Emi Gal: It’s probably best to have a technical co-founder who can drive the technology of the business. In the early stages, you don’t even need to write any code. Just design some wireframes and show them to people. If the feedback is positive, then build it. If not, iterate on the idea.
Joe Scarboro: In-house is generally the way to go, although outsourcing works in certain circumstances. We encounter a lot of people at Silicon Drinkabout and our other events that ask us where to find what I call the “Mythical Technical Co Founder”. It’s a really tough job to find someone that has the skills and also shares your vision and passion for the project, sometimes it’s just easier to bite the bullet and dive in yourself!
When is the right time to invest in growth?
Jules Coleman: It sounds like a cliche, but you’ll just know when the time is right to grow. We spent about eight months operating a very different business model to the current version of hassle.com. Back then, we were constantly wondering what the signs of real growth would look like. When we pivoted to the current business model the difference couldn’t be more profound. Whereas before it felt like we were pushing a cart uphill, with the new model the business just took off, whether we were ready or not.
Andy Morley: We knew it was time to grow when we were reaching capacity with the amount of physical work that we could do. We were back to working till midnight to make sure we were servicing all our clients. At this point when we were confidant that we had financial stability and a “buffer” of cash built up in the bank account we considered our first recruitment drive.
Gary Stewart: I remember when we first raised money, I somehow felt that I’d accomplished something. The key is to have a clear vision and a decent plan of how to get there. It’s hard, because for many startups, there is such profound uncertainty regarding the product, the market and the business model. If it’s a truly disruptive product or service, then there might not be a lot of appropriate analogues. The key is to surround yourself with experienced people with domain expertise, but even then, there is no magic formula. Remember that the money is just a means to an end, and not an end in itself.
Emi Gal: Are users / customers biting your hand off? As in: servers are blowing up, sales people need more days in the week, account managers need more hours in the day? Scale. Are you still having to convince users / customers to use / buy your product? As in: you’re not seeing any urgency with clients / users, revenue is not growing, user base is not growing. Don’t scale – you’ll run out of money. The short version, don’t scale until you are certain (and have data to prove it) that you’ve built something people need, and there’s enough of them to build a big business (investors call this the addressable market).
Jason Goodman: It may sound insanely obvious but you have to keep listening to your customers, whoever they are. Constantly talk to them and get good at listening. Key business data is another way of listening to what they want or rather how they interact with your business. they set the pace in any start up. the sooner you can crystallize who your customers are and what they want the faster you can scale what you are doing.
Ami Shpiro: There is never a wrong time to grow. If you see an opportunity for growth, seize it. But, the biggest challenge is to stick to your values along the way and remember what you are trying to achieve. A key factor is to make sure your team is ready for this growth.
Should startups do any marketing in the first year?
Jason Goodman: The best entrepreneurs I’ve worked with think unimagineably boldly, from day one. They set themselves the very best reference points for what is a best of breed brand they want to beat. I remember when I first worked with Niklas Zennstrom at Skype – the product was still very hit and miss and he was still running Skype out of his flat, but he had an amazing ambition for the business to be as simple and loved as Google and Virgin. By setting that sort of ambition, everyone around him pushed so much harder (even with scarce resources). He didn’t spend big money on marketing, but every effort around branding, PR and social media was the very best it could be. He never settled for second best just because he was in a startup.
Jules Coleman: The most important thing that you can do is to try and understand who your audience is. That is the single biggest factor that will drive how you will market. If you are creating a product for other startups, then you should be going to every event on the startup calendar. If however you are building a product for OAP’s in rural communities, then it probably won’t matter how many Instagram followers you have. Focus on getting an inital small group of real customers. People who would actually buy and use your product in the real world. Focus on making them think that this is the greatest thing since sliced bread and have them market to their friends.
Emi Gal: What worked for us: Have a compelling personal story on why you started the business. Do something that matters (it’s easier to sell something that resonates with people). Go to trade events / parties, find journalists and buy them drinks. They like that. Help journalists with information and data. They’ll return the favour. Build a profile on social platforms. It’s where people get their news these days. Personal branding and building relationships is a good complement, but the key is the product and the customer validation.
Gary Stewart: Until you have a product-market fit – that is, you have a critical mass of users that validate the need for your product – you probably shouldn’t invest a lot in marketing.
Tony Stott: In a B2B environment, it is essential to know ‘Crossing the Chasm’, which is a pretty standard textbook on the issues of marketing a new concept with limited resources. Choose a bite sized market, get some customer case studies, join the Linkedin communities, become the domain expert and then move out into other markets. It works.
Ami Shpiro: There are many resources available in the startup community to help you market yourself early on. Partnerships through programmes, events, awards, etc provide the base for this. Online tools are usually the quick and free wins. A good web presence is a useful way to move forward.
Joe Scarboro: Brand is absolutely key (that doesn’t just mean the design and tone of voice). Once you have a clear brand which incorporates the key themes of your vision, all decisions can be informed by it. Aside from that, social media was a huge part of growing what we do, in our case Twitter has been essential. I’d agree with the comments on keeping marketing/PR spend super lean if not non-existent in the first year.
What do startups need to know about raising investment?
Ami Shpiro: I have tended to pursue investment capital from individuals or from institutions that in themselves validate the opportunity. I have also tended to focus very much on the business fundamentals rather than just looking for the right answers.
Jules Coleman: The team element remains important throughout. Do not start a business with people you don’t want to see for 12 – 14 hours every single day for the next 5 years. It is intense and having a unifying bond that existed before the business is something that myself and my two co-founders have relied on on numerous occasions.
Emi Gal: All investors care about is the 3Ts. Team, Technology and Traction. And the most important of them is Traction. Once you have the 3Ts, it’s kinda like dating – the more you date, the higher the chances you’ll find the one. Seed is all about investing in the founders. Series A is all about turning a product into a business. Series B onwards is all about scaling. Seed is easy in the UK, Series A is easy in the US, Series B onwards is easy anywhere if you have real traction, and difficult anywhere if you don’t.
Jeff Lynn: Fundraising takes hard work at each stage. Seed can often be the trickiest, as you often need this capital before you can get traction with angels and VCs. A big part of why we founded Seedrs was to help address that vicious circle. Later-stage is a little bit more transparent, but it’s still hard work to find the right deal at the right time. My main bit of advice for anyone looking for funding is that it is very rarely a linear process. The idea of going straight from a seed round, to series A to series B and onwards is very much the exception rather than the rule. Most great businesses wind up with complicated paths to funding, taking bits and bobs at different times as they grow.
Jason Goodman: I watched Saul Klein get Video Island (which finally became Lovefilm) off the ground and he was very clever to raise big on day one. In what became a very competitive market, the biggest difference between his and the many other good movie rental businesses was the runway that he created. He learnt that from his time working in the USA. In a competitive market, you always need more money to grow a business then you could imagine or plan for. Taking funding creates all sorts of pressures any start up could really do without. my advice is to do whatever you can to avoid needing investors in the early days. once you have a semi proven product and clear road to growth – make sure you take money off people you really want to spend time with, trust and can add value beyond just providing cash.
Joe Scarboro: In our case, funding wasn’t ever really an option we considered. 3beards fell out of something we were doing in our spare time because we loved it, so we’re self funded. This type of serious bootstrapping clearly has its challenges, but so long as you have the right advisors on board to give you advice and direction (and the occasional kick when you need it!) and you have the passion and drive to get the job done, a lot is possible with limited resources.
Tony Stott: Always try and get cash from your customers first. They see an immediate benefit from buying your product. An investor only gets the benefit a few years later, so is much more careful with their cash. And an investor knows that lots of businesses fail (you won’t believe that yours will fail because you will be convinced in your own abilities). If you want to raise investment, then look beyond the cash that they will provide. Do they add anything (knowledge of your market, access to a cluster of similar companies, proper growth expertise, operational support)? And are they professionals, or will they get emotionally involved when times get tough?
Gary Stewart: It all depends on which stage of the project that you’re at. All funding is valid except for raising too much money from family and friends. It’s not worth the hassle if all goes wrong, as it will in the majority of startups. Also, I’d avoid any loans or anything that requires a personal guarantee. That being said, if you are at the product phase, any public money, angel investment, crowdfunding or acclerator money is probably welcome. Better if it’s smart money, but money is money (or better said, gasoline) beyond a certain point. The other thing to be said is to get enough money to buy you a decent runway. Fundraising can be a time-intensive distraction. Better to do it well enough to buy yourself twelve to eighteen months of additional life, and be clear what milestones you’ll have to hit to justify the next round at a much higher valuation.
Check out the Q&A page itself for the rest of the really interesting discussion including tips on what not to do and the best advice that each panel member has received during their careers.
